Each que IS WC amarks for total of 40 marks. 43% 1. Prospect theory helps to explain why the owners of firms that underprice continue to maintain their relationship with their advising investment bank - it is because they are able to purchase implicit insurance against misstatements in the prospectus. 2/5 2. Point A on the following diagram demonstrates the payoffs to shareholders using the option-theoretic interpretation of debt and equity for a firm that has $50m of debt outstanding that is payable in the future. A 50m 50m 70m 3. From an investor's point of view, the question of whether the imputation system induces a preference for holding debt or equity may be dependent upon how the returns to equity holders are generated. Each que IS WC amarks for total of 40 marks. 43% 1. Prospect theory helps to explain why the owners of firms that underprice continue to maintain their relationship with their advising investment bank - it is because they are able to purchase implicit insurance against misstatements in the prospectus. 2/5 2. Point A on the following diagram demonstrates the payoffs to shareholders using the option-theoretic interpretation of debt and equity for a firm that has $50m of debt outstanding that is payable in the future. A 50m 50m 70m 3. From an investor's point of view, the question of whether the imputation system induces a preference for holding debt or equity may be dependent upon how the returns to equity holders are generated